From Pain Point to Strategic Powerhouse: Rethinking Returns in a Circular Retail Economy

In the past, returns have been viewed as the “paint point of retail” that is unavoidable – often managed as a cost center with the goal to minimize returns costs. But in today’s dynamic economy, returns can be turned into a strategic lever for strengthening consumer loyalty, profitability, and sustainability – if you manage them well.

We are operating in an environment where inflation, fluctuating GDP growth, or ongoing geopolitical uncertainty are directly shaping buyer behavior. Consumers are becoming more price-sensitive, more value-focused, and far more informed. As a result, we see a growing interest in renewed and refurbished products, which may come at 30-35% lower costs. Buyers also look into return policies before they buy, they compare and contrast offers, and they lean on reviews and influencers. We are seeing consumers engaging more in bracketing, where consumers buy multiple items with the intent of returning many. Around 40% of customers now buy with the expectation that they will return something. Some are even deliberately wardrobing (wearing items once and sending them back).This shift has real implications for retailers, who need to balance between meeting high customer expectations for fast, free, and easy returns, and minimizing return rates and logistics costs. Poorly managed returns not only result in higher logistics and processing costs, lower product recovery rates, but also reduced resale potential, and higher customer churn. However, with the right technology, tools, processes, and partners, businesses can turn their returns & circularity activities into a strategic powerhouse. 

Returns done right: A competitive edge

Let me give you a tangible example. A large international apparel brand we worked with consolidated its fragmented return operations across Europe into a single, purpose-built return center near the German border. This facility can handle over 100,000 returns per day across 15–20 markets, that is more than 20 million units annually. The impact?

• 97% of returns processed within 24 hours, allowing for rapid refunds and driving repeat purchasing.
  
• 30% cost reduction in warehousing and logistics operations.
  
• >90% of products to restock and resell, thanks to better grading and refurbishment processes.
  
• Up to 40% repurchase rate, compared to 10% for retailers with slow and complex refund processes.
  

Add in return analytics and smart automation, which includes conveyors, ring scanners, robotics and purpose-built IT systems, and you’re looking at a high-efficiency model that not only supports circularity, but actively drives profit.

Tech-enabled intelligence: AI, analytics & automation

The best omnichannel operators are shifting to rule-based decision making powered by analytics. You combine information such as product condition, return reasons, shopper profiles, logistics and repair costs, and resale potential – and let the system decide whether it is best to restock, refurbish, or even tell the customer to keep the item. It’s fast, cost-effective, and scalable.

AI comes in for fraud detection and product authentication, like digital fingerprints for high-value items. Meanwhile, automation and robotics play a key role too, particularly for standardized items such as smartphones or tablets, where we see best-in-class operations with 60–70% of inspections and grading happening fully automated.

Partnering for circular success

Returns are complex as they involve many different elements ranging from drop-off networks, return transport, inspection, grading, repairs, restocking, resale, to recycling – and it all needs to work in sync. That’s where the ability to work with different partners and to integrate different solutions is important. For example. tech returns platforms offer strong flexibility and analytics but often lack control over logistics. Resale marketplaces are great for liquidating excess inventory. And players like DHL, with integrated logistics, processing, and resale capabilities, offer scalability and control, especially for high-volume retailers.

Leading the pack: What the best retailers are doing

Top retailers are redesigning the returns experience for their buyers with three clear goals: flexibility, convenience, and speed.

1. Omnichannel returns: Think “buy online, return in-store.” And not just in your own stores, but in partner locations. Smart layout choices (e.g. placing returns desks at the back) increase foot traffic and incremental sales.
   
2. Label-less, package-less returns: No longer innovations; they’re baseline expectations.
   
3. Faster refunds: Processed within 24–48 hours. Because the faster you refund, the faster and more likely they re-purchase.
   

Smart returns policies: tailored, tiered, tactical

Retailers are now moving away from “one-size-fits-all” returns policies. With the help of returns analytics, they are able to better distinguish between loyal customers, frequent returners, or identify fraud risks – and adjust their approach accordingly.

It’s not about penalizing customers, it is about recognizing behavior patterns and adapting. That might mean:

• Correcting or optimizing product descriptions (e.g. sizes)
• Offering free, flexible returns to high-value or loyal customers.
• Charging return fees for excessive returns.
  
• Or flagging serial abusers using AI-driven detection models.

Embedding circularity into the business model

Opportunities to benefit from returns become even greater when we extend to circular business models. This ensures optimizing returns of “new” products that were purchased in the wrong size, color, condition, or because buyers simply did not like the item. It also means embracing business models that focus on extending the product lifecycle and recovering material to maximize value and minimize waste.

We are seeing an exciting range of new circular business models, such as certified refurbished offerings by major consumer electronics brands like Apple, Samsung, Dell, Microsoft, or HP. Two- or three-year-old cell phones, laptops, tablets, or gaming consoles are returned, inspected, graded, refurbished, and then remarketed. Instead of having only one life, those products will see a second, or perhaps third life cycle, before they reach end-of-life. That way, brands and retailers can not only generate one – but multiple revenue cycles with the same item. And at end of life, valuable materials such as precious metals are recovered – which in times of growing tariffs and stricter export controls becomes an even more important path of material sourcing. 

While the electronics industry is leading the way here, with 15–30% consumers in Europe already buying refurbished devices, fashion and apparel are catching up. Take, for example, Patagonia’s Worn Wear, H&M Pre-Loved offerings, or Rent-the-Runway clothing subscription model.

The opportunities are real, and so are the benefits. A recent study by Boston Consulting Group showed that circular offerings can deliver 10-15% top-line growth, reduce 10-15% material costs savings, reduce waste, and cut greenhouse emissions. 

So especially in times when consumers are becoming more price-sensitive, and value-and sustainability-focused, a well-managed returns & circularity approach can be a strategic game-changer. This not only strengthens customer loyalty and rebuy behavior, but drives clear financial benefits, whilst benefitting the environment.